Lantheus Holdings, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Lantheus develops, manufactures and sells diagnostic medical imaging products, including DEFINITY, TechneLite and Xenon. Amounts below are in millions of dollars unless otherwise noted.
Financial performance
| Metric | Q2 2016 | Q2 2015 | H1 2016 | H1 2015 |
|---|---|---|---|---|
| Revenue | $78.0 | $73.3 | $154.4 | $148.1 |
| Gross profit | $35.8 | $32.7 | $69.5 | $68.4 |
| Gross margin | 45.9% | 44.5% | 45.0% | 46.2% |
| Operating income | $14.2 | $5.4 | $31.9 | $16.7 |
| Net income (loss) | $7.4 | $(24.4) | $17.7 | $(24.0) |
| Operating cash flow | Not provided for quarter | $21.4 | $3.7 |
- Revenue rose 6.3% in Q2 and 4.3% in H1. DEFINITY revenue increased to $33.5 million in Q2 and $64.9 million in H1; TechneLite increased to $25.3 million and $50.1 million, respectively. Xenon fell to $6.8 million and $14.9 million, respectively.
- U.S. revenue grew 11.6% in Q2 and 9.3% in H1. International revenue declined 14.1% and 16.2%, respectively, reflecting the Canadian business sale and unfavorable currency effects.
- Q2 gross margin improved year over year, but H1 gross margin declined. Higher DEFINITY and TechneLite volumes helped; lower Xenon prices and higher material costs weighed on results.
- Operating income included a $5.9 million gain from the Canadian asset sale in H1. Lower operating expenses also reflected the prior-year $6.5 million Avista advisory agreement termination fee and lower R&D depreciation.
- Net income comparisons benefited from lower interest expense after the 2015 debt refinancing and the absence of the prior-year $15.5 million debt-extinguishment loss. H1 2016 interest expense was $14.0 million versus $24.5 million in H1 2015.
Cash, debt and liquidity
- Cash and cash equivalents were $54.9 million at June 30, up from $28.6 million at December 31, 2015. H1 operating cash flow was $21.4 million; investing cash flow was $6.7 million, including $9.0 million in proceeds from the Canadian sale and $2.4 million of capital expenditures.
- Term-loan principal was $361.4 million, with a carrying value of $352.5 million net of unamortized discount and financing costs. The term loan matures June 30, 2022; its stated interest rate was 7.00% at quarter-end. No revolving-facility borrowings were reported.
- The $50 million revolving facility had approximately $34.4 million of net borrowing-base availability after an $8.8 million standby letter of credit and accrued interest. Availability may be constrained by borrowing-base changes and debt covenants.
- Management stated that cash, operating results and revolver availability should fund liquidity needs for at least the next 12 months. The company reported a $166.4 million stockholders’ deficit.
Outlook, risks and unusual items
- No quantified earnings or revenue guidance was provided. Management cited continued DEFINITY growth potential, while noting competition from Bracco’s Lumason and GE Healthcare’s Optison.
- Xenon faces renewed U.S. competition from Mallinckrodt. Lantheus said committed-volume contracts helped provide predictable 2016 volumes but at substantially lower revenue and gross-margin contributions than in 2015.
- Supply concentration remains material: JHS is the sole-source manufacturer for DEFINITY, Neurolite and TechneLite evacuation vials. DEFINITY technology transfer to Pharmalucence was delayed, with no clear completion date. The company also described reliance on third-party isotope supply as the NRU reactor transitions from routine supply in October 2016.
- The Canadian radiopharmacy and Gludef business sale closed in January for $9.0 million cash, with a $5.9 million pretax gain. The company entered a long-term supply arrangement with the buyer.
- The Second Circuit affirmed dismissal of the company’s insurance claim related to the NRU reactor shutdown; Lantheus considered the matter closed. The filing reported no other material ongoing litigation or material regulatory proceedings as of June 30.
- Debt covenants include a total net leverage limit of 6.00x through Q4 2016, tightening thereafter. A 100-basis-point adverse interest-rate change was estimated to increase H1 interest expense by approximately $1.8 million.
Important facts for investors to verify
- Whether DEFINITY and TechneLite volume growth can continue and offset Xenon price and volume pressure.
- Progress and regulatory approvals for alternate manufacturing sources, especially Pharmalucence and JHS technology transfers.
- Actual covenant headroom, revolver availability and debt-service capacity as leverage limits tighten.
- The sustainability of operating cash flow excluding the Canadian sale proceeds and other nonrecurring effects.
- How the Canadian divestiture and ongoing supply agreement affect international revenue, margins and customer concentration.